definition of deficiency judgment, being sued in FL state for a deficiency judgment, foreclosure

A deficiency judgment is a judgment that is entered against a property owner who has had their property foreclosed upon and then sold by the court at auction to the highest bidder and the selling price was not enough to cover the mortgaged amount and the lender's foreclosure costs. The difference between the amount that was owed to the lender and the auction sale price is the amount the lender is entitled to receive a deficiency judgment for. Deficiency Judgments are common afer a foreclsoure sale these days because the values of homes are dropping below what is owed on them.

A deficiency in this context occurs when the sale price of a piece of property at a foreclosure auction is not enough to cover the lender's judgment against the borrower. A deficiency judgment is seperate from the foreclosure judgment and it results in the court awarding the lender a monetary judgment for which the borrower will be personally responsible. Deficiency judgments are not automatic. While most foreclosure judgments contain language refering to a deficiency judgment, it is a seperate action and must be specifically applied for. A evidentiary hearing is then held in front of a judge, who will hear evidence presented by both sides on the value of the property on the date of the foreclosure sale. This evidence can come in the form of a certified appraisal, information from the tax rolls, or even testimony from a licensed realtor. In order to obtain a deficiency judgment, it is the lender's burden to show that the actual value of the property on the day of the foreclosure sale was less than the amount of the judgment. If the borrower can present evidence that the value of the property on the date of the foreclosure sale was equal to or greater than the judgment, a deficiency will not be awarded.

Even in today's market deficiency judgments are not very common for a variety of reasons, although we may start seeing more of them because of the monumental losses the banks are taking and the fact that many foreclosures are investment properties. This is significant because most individuals will do just about anything to save their home and if it is ultimately foreclosed it is extremely unlikely that they will have any assets to pay a deficiency. Investors, on the other hand, will likely view an upside down condo in Florida as a business decision devoid of emotion. While many investors could concievably make the mortgage payments, they realize that the property is so upside down that they will never get back to even. Add to that the fact that many investors put little or no money down, and the choice to simply walk away becomes even more appealing. It will be interesting to see how the banks react to this situation over the coming months.

One final point dealing is the purchase price at the foreclosure sale. It is not unusual in the current market to see properties that are more than $100,000 upside down. The lender will have a credit to bid at the auction up to the amount of its judgment, which again, can easily be $100,000 more than the property is actually worth. Most people who bid at foreclosure sales are savvy and do their research. They know that the lender has a credit for far more than the property is worth and therefore will not bid on the property at all. The end result is that the lender "buys" the property for $100. This will be significant if the lender does pursue a deficiency judgment, as the borrower will want to present evidence that the property was worth far more than $100. While the borrower may not be able to avoid a deficiency judgment altogether, he may be able to reduce the amount significantly.

In closing, foreclosures and the related deficiencies are complicated and emotionally charged issues. There are thousands of web sites and brochures offering advice on dealing with these issues. Some of them are legitimate, but many are not. Please do not use any one piece of information alone, including this answer, as the basis of a decision for dealing with foreclosure or deficiency issues. This answer is intended to be used for information purposes only. A licensed attorney should be consulted immediately in all cases involving any type of legal proceeding, and a web site or article, including this one, does not qualify as legal advice or a consultation with an attorney.

A great deal depends on your state law. In CA, for example where I practice a deficiency judgment is prohibited on a purchase money mortgage, which simply means that if you buy the house to live in and lose it at foreclosure the most the lender can get is the auction price. Check with a Fla attorney who will know instantly if you are in danger or not.